Import substitution industrialization or "Import-substituting Industrialization" (called ISI) is a trade and economicpolicy based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products. The term primarily refers to 20th century development economics policies, though it was advocated since the 18th century.

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History

Even though ISI is a development theory, its political implementation and theoretical rationale are rooted in trade theory – it has been argued that all or virtually all nations that have industrialized have followed ISI.

Mercantilist economic theory and practices of the 16th, 17th, and 18th century frequently advocated building up domestic manufacturing and import substitution. In the early United States, the Hamiltonian economic program, specifically the third report and magnum opus of Alexander Hamilton, the Report on Manufactures, advocated that the US become self-sufficient in manufactured goods. This formed the basis of the American School, which was an influential force during the United States's 19th century industrialization.

Indeed, Baer contends that all countries which have industrialized after the United Kingdom went through a stage of ISI in which the large part of investment in industry was directed to replace imports (Baer, pp.95-96).[1] Going further, in his book Kicking away the ladder, Korean economist Ha-Joon Chang also argues, based on economic history, that all major developed countries – including the United Kingdom – used interventionist economic policies to promote industrialization and protected national companies until they had reached a level of development in which they were able to compete in the global market, after which those countries adopted free market discourses directed at other countries in order to obtain two objectives: to open their markets to local products and to prevent them from adopting the same development strategies which led to the developed nations' industrialization.